High mortgage interest rates and a limited housing supply mean more than half of Americans can’t afford to buy a home, prompting some developers to offer a solution to the problem by building profitable rental housing.
While many Americans wait for a potential relief for the housing market, some real estate developers are taking advantage of the high demand in the market and investing in “built to rent” communities made up of full-sized homes available for rent.
According to RentCafe’s analysis of Yardi Matrix data, rental housing construction is at an all-time high: 9,978 homes were built in 2021, jumping to 15,691 in 2022. More than 27,000 new rental homes were built last year, with most of them being built in Phoenix, Dallas and Atlanta.
The National Association of Home Builders said building rental housing is a good option for people who can’t afford to buy a home or who tend to move frequently for work.
“Homeownership is typically the most important accumulation of wealth for families,” said Robert Deetz, chief economist at Britain’s Labour Group. “From a policy perspective, building more housing that offers the opportunity for homeownership is undoubtedly the best choice, but we should not ignore the fact that renting may be the best option for some households,” the National Association of Home Builders (NAHB) said.
Renting is a better option in markets across the US
Sarah Mukadam Grayer (above) moved to Minnesota from Michigan in 2023 and now works as a property manager for two rental housing developments in the state. (Fox News/Mills Hayes/Fox News)
Sarah Mukadam Grayer and her family of four moved from Michigan to Minnesota last year. The family looked for other housing options but didn’t want to be crammed into an apartment with their two teenage children, so they ended up in a rental community in Woodbury, Minnesota.
“There’s definitely a trend towards renting rather than owning in these types of communities because some people just don’t have the capacity to maintain those homes anymore,” said Mukadam Grayer, who now serves as property manager for two communities built for rental.
Mukadam Grayer was looking for work in a new area when he was hired by Ian Peterson, president and owner of Integrated Properties, Inc. Peterson had heard about the rental housing trend while working for an equity investment group in Chicago.
According to the CEO, some Americans are choosing to rent, creating new real estate opportunities.
“I thought that was totally crazy,” Peterson said. “No one would pay that much to rent a house.”
To his surprise, people paid the rent: His property, The Preserve at Albertville, has homes with rents ranging from $2,700 to $4,200 a month.
The Albertville preserve is across the street from a school, and Peterson specifically targets areas with good school districts to attract families. (Fox News/Mills Hayes/Fox News)
The neighborhood has a pool, clubhouse, gym, dog park, and property managers who also provide maintenance and landscaping.
“Whether you’re in Minnesota, Tennessee, Colorado or Texas, the demographics are pretty much the same: one-third post-parenting, one-third millennials, one-third [of] “They’re what we call 40-somethings,” Peterson said.
Peterson explained that people in their 40s are either moving for work and want to explore the area before buying, or they’re getting divorced and need to stay in the same school district, adding that they specifically target areas with good school districts.
“While a typical apartment building averages 50 to 55 percent occupancy per year, a community like this averages 35 to 40 percent,” Peterson says. “It really attracts residents and gives them the luxury lifestyle they want, so they have no reason to leave. So they get to know their neighbors. Everyone is a friend.”
Peterson said he has paused construction on any additional properties until interest rates drop, but there are three more communities where construction could potentially begin in late fall.
Renters are staying put, but what does that mean for housing affordability?
Ian Peterson, president and owner of Integrated Properties LLC, said he wants to develop these rental communities in areas with good school districts. (Fox News/Mills Hayes/Fox News)
Dietz said these communities are good options for people who are saving up for a down payment on a home, who move a lot for work or who just like to be on the move, and that the communities also benefit renters.
“They’re more likely to vote, they’re more involved in school activities, they’re more likely to volunteer,” Dietz said, “and, most important of all, they accumulate more wealth.”
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The NAHB said home affordability should improve once the Federal Reserve begins lowering interest rates.
